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You don't know Jack ... Daniel's

June 3, 2014: 1:15 PM ET
Message in a bottle: Brown-Forman shares have surged this year. Some investors think the maker of Jack Daniel's could be a tasty takeover target.

Message in a bottle: Brown-Forman shares have surged this year. Is the maker of Jack Daniel's a tasty takeover target?

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

If you're looking for a hot stock ... go no further than your local bar or liquor store.

Shares of Brown-Forman, the maker of Jack Daniel's, are up nearly 25% so far in 2014. That puts the stock among the top 10% of S&P 500 companies this year.

Why all the fuss for the pride of Lynchburg, Tennessee? Brown-Forman (BF-A) (BF-B) will report its latest earnings Wednesday morning.

The results should pack more of a punch than an 80 proof bottle of Jack. Analysts predict that sales increased nearly 7% in the quarter and that earnings per share rose nearly 30%.

But the fundamentals aren't the only thing that has Wall Street excited.

While the iconic whiskey has long been the muse of many a country and rock musician in the United States, a takeover of one of Brown-Forman's biggest rivals earlier this year has investors wondering if a competitor from Europe or Asia might make a run at Brown-Forman.

Related: What would you pay for a drone bartender?

Beam, the owner of bourbon brands Jim Beam, Maker's Mark and the so-good and strong it should be illegal Booker's, was bought by Japanese conglomerate Suntory. That deal, announced in January, closed in April.

The Beam purchase led to immediate speculation that Brown-Forman could be next ... as well as a slew of "Lost in Translation" jokes. (Kudos to Tumblr user Kateoplis for awesome Bill Murray GIF below.)

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But will Brown-Forman really sell? It is by no means a tiny company. It has a market value of $20 billion. But it is smaller than Suntory as well as industry leader and Johnnie Walker parent Diageo (DEO), which is worth $80 billion. It's also a tiny bit smaller than France's Pernod Ricard, which owns the Jameson brand of Irish whiskey.

Privately held Bacardi could also be a potential acquirer. It already owns the Dewar's brand of Scotch whisky.

And there's more to the company than its most famous product. Brown-Forman also owns Southern Comfort, the Chambord brand of liqueur, Finlandia vodka and Woodford Reserve (one of my favorite bourbons).

So Brown-Forman could be a logical fit for a larger beverages firm -- particularly since it seems that consumers around the world can't get enough of trendy brown liquor.

That said, it's hard to imagine Brown-Forman agreeing to a deal unless the price tag is significantly higher. That's because this is a family-controlled company.

There are two classes of shares. The A shares are mostly owned by descendants of George Garvin Brown, who founded the company in 1870. In fact, there are currently three fifth-generation members of the Brown family on the company's board.

Related: Constellation Brands CEO says craft beer may not be good bet

That said, owning the stock could still be lucrative for investors -- especially if you're a whiskey connoisseur who wants to follow the Peter Lynch school of buying what you know. Brown-Forman pays a dividend that yields a decent 1.6%. That's not bad at a time when long-term Treasury yields are so low.

And while family-controlled companies may want to do everything they can to protect their birthright, that could play into your advantage.

Think of the big premiums that have been paid for family-run firms in the past few years, most notably the purchase of Dow Jones by Rupert Murdoch's News Corp. (NWSA) and the takeover of Anheuser-Busch by InBev (BUD).

The one big risk for investors is that the takeover speculation may already be distilled into the price. The only major hard liquor company with a higher price-to-earnings ratio than Brown-Forman is Suntory. Still, Brown-Forman's expected earnings growth is among the top in the industry as well.

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But for the stock to keep climbing, Brown-Forman will have to remain one of the industry's faster growers.

With that in mind, keep a close eye on the company's outlook when it reports its results Wednesday morning. The numbers are for Brown-Forman's fiscal fourth quarter. So the company is likely to provide a glimpse as to what it expects for the fiscal year that ends in April 2015.

Analysts are estimating that profits will hit $3.29 a share and that sales will come in at $4.2 billion. Whether or not investors will order up another shot of the stock ... or toss their glasses in frustration ... will probably depend on how the company's outlook compares to what Wall Street is expecting.

Anyway, I mentioned earlier that there are many songs that reference Jack Daniel's. What's your favorite? Mine is "I Drink Alone" by George Thorogood and The Destroyers. (Bonus points to George for also plugging his friend Jim Beam.) But if yours is Tik Tok by Ke$ha, then I am not sure we can be (drinking) friends.

Now go enjoy Delaware's finest!

  • Brown (booze) is the new black for investors

    Oh, show me the way to the next whiskey stock?

    Jim Morrison isn't necessarily the best source of investing advice. But with economic times being as tough as they are, it is somewhat telling that there's a bull market in bourbon, scotch, rye and other brown liquor.

    Shares of Beam (BEAM), the distillery that was spun-off from what used to be known as Fortune Brands (FBHS), is just one of a small MORE

    - Jun 6, 2012 12:58 PM ET
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